Apple Struggles Amid Tariffs and AI Competition: Is the Stock Still Attractive?

Apple's stock has struggled this year due to President Trump's trade agenda, which has led to tariffs on imports from China, where Apple manufactures a significant portion of its products. The company has also faced criticism for lagging behind its peers in the artificial intelligence market. However, Apple has announced plans to spend $500 billion over the next four years to strengthen its local manufacturing capacity, including the production of AI servers in the US. The company may also move manufacturing outside of China to other countries not targeted by Trump's tariffs.

Apple's stock has been under pressure this year due to a combination of President Trump's trade policies and the company's perceived lag in the artificial intelligence (AI) market. These challenges have led to a 14% year-to-date decline in Apple's share price compared to the S&P 500's 8% gain [1].

Trump's Tariffs

Starting August 1, President Trump's tariffs will apply to Apple products made in Thailand, including the Mac and Apple Watch [2]. This development comes as Apple has been expanding its US manufacturing infrastructure while also exploring alternative production hubs in countries like India and Vietnam to avoid the harshest tariffs from China, which have reached as high as 145% at one point [2]. The tariffs could pose a significant challenge for Apple, as both the Mac and Apple Watch are manufactured in Thailand.

AI Strategy

A Wall Street analyst has urged caution on Apple stock due to the company's lack of a clear strategy for artificial intelligence, including generative AI [1]. Laura Martin, a Needham analyst, has warned that Apple risks falling too far behind Big Tech rivals if it doesn't get its act together in AI. Martin rates Apple stock as hold, or neutral, and believes that Apple's share price will fall once investors understand the investment levels required to catch up with other Big Tech conglomerates that were early adopters of GenAI [1].

Martin has also warned that tech talent may leave Apple to work for big players in AI such as Meta Platforms (META), OpenAI, and Anthropic if Apple doesn't act. Additionally, Apple iPhone users might switch to handsets running Google Android software if Alphabet's (GOOGL) Google gets too far ahead in AI technology [1].

Apple's Response

Apple has announced plans to spend $500 billion over the next four years to strengthen its local manufacturing capacity, including the production of AI servers in the US [3]. The company may also move manufacturing outside of China to other countries not targeted by Trump's tariffs. However, Morgan Stanley analyst Erik Woodring has said that sentiment won't materially shift on Apple stock until investors get clarity not only on the company's AI strategy but also tariffs and the pending Department of Justice ruling on Apple's search engine deal with Google [1].

References

[1] https://www.investors.com/news/technology/apple-stock-iphone-maker-needs-clear-ai-strategy/
[2] https://www.aol.com/trump-tariffs-impacts-macs-apple-154402153.html
[3] https://indianexpress.com/article/business/commodities/1-in-3-us-smartphone-imports-now-made-in-india-chinas-lead-shrinks-10150262/